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SEK150m
Research: Industrials
AAC Clyde Space’s Q322 report showed improved momentum but also the deferral of project milestones into FY23 from FY22 as some satellite launches are delayed. We expect the positive momentum to continue in Q422, albeit at a lower level than envisaged at the half year. Growth should accelerate as AAC moves towards its FY24 targets. We feel that not only should the more positive cash flows and earnings performances appear more realisable, but we also expect risk to diminish as the software services element of the model grows.
AAC Clyde Space |
Gathering momentum into 2023 |
Q322 results |
Aerospace and defence |
29 November 2022 |
Share price performance
Business description
Next events
Analyst
AAC Clyde Space is a research client of Edison Investment Research Limited |
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AAC Clyde Space’s Q322 report showed improved momentum but also the deferral of project milestones into FY23 from FY22 as some satellite launches are delayed. We expect the positive momentum to continue in Q422, albeit at a lower level than envisaged at the half year. Growth should accelerate as AAC moves towards its FY24 targets. We feel that not only should the more positive cash flows and earnings performances appear more realisable, but we also expect risk to diminish as the software services element of the model grows.
Year end |
Revenue (SEKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
98.4 |
(26.7) |
(0.26) |
0.0 |
N/A |
N/A |
12/21 |
180.0 |
(27.0) |
(0.14) |
0.0 |
N/A |
N/A |
12/22e |
214.1 |
(24.9) |
(0.12) |
0.0 |
N/A |
N/A |
12/23e |
356.7 |
4.9 |
0.02 |
0.0 |
70.5 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Launch deferrals constrain FY22 performance
While some of the supply chain issues that have dogged AAC’s FY22 performance may be starting to ease, some launch deferrals are shifting revenue recognition milestones into FY23. Revenues grew by 36% in Q322, increasing momentum compared to the constrained H122 performance, although the Space Missions segment remains subdued. Several important deliveries and launches are apparent in Q422 and management expects to recognise some SEK75m of revenues from the backlog during the period. However, the FY22 management expectation is now for net sales of SEK210m, representing a c SEK30m reduction on the half year level, with increased losses and adverse cash effects. We have cut our FY22 sales estimate by 12% to SEK214m, with slightly increased loss estimates.
Growing momentum into FY23
More positively, the launch deferrals should be recoverable in early FY23 boosting Space Missions’ net sales, albeit the delays to commissioning may have a knock-on effect on higher-margin Space Data as a Service (SDaaS) revenues. Strong Space Products order intake in Q322 has improved the period-end backlog by almost 5% to SEK419m which, together with an increasing number of self-owned satellite launches next year, should drive strong growth in both Space Missions and SDaaS sales with a beneficial effect on cash flow. We have reduced our FY23 group net sales expectations by 4% and more than halved our PBT estimate to SEK4.9m.
Valuation: Closing on profitable metrics
As we start to consider growth to the FY24e SEK500m revenues plan, the more traditional sales and earnings growth valuation metrics should start to be more appropriate. We feel those could start to underpin longer-term confidence in our cash-based valuation, which currently returns a value of SEK7.2 per share. A single-digit P/E multiple for FY24e seems likely if management can deliver. That would be undemanding given subsequent growth implied to meet the 2030 targets.
Q322 results
In Q322, AAC Clyde Space saw an acceleration in net sales growth to 36% at SEK45.7m (Q321 SEK33.7m) compared to 8% in H122. Net sales included SEK3.8m of royalty payments from York Space of the US to AAC Clyde Space for its avionics technologies. Excluding licence and royalty income, net sales grew by 25%.
Growth continued to be constrained by the industry-wide supply chain disruption to deferred project completions and deliveries, although this now seems to be easing. All of the business, except for the small African activity, made full contributions during Q322 and Q321 so comparisons are more direct. Omnisys (consolidated from 1 May 2021) saw Q322 net sales growth of 2% to SEK9.6m (Q321: SEK9.4m). Hyperion sales rose modestly to SEK2.8m (Q321: SEK2.0m), while SpaceQuest generated SEK8.1m (Q321: SEK5.3m) of net sales, with healthy improvements in both SDAAS and Space Products revenues. Clyde Space in Glasgow continued to experience delays in Space Missions projects but net sales were more stable than in H122 at SEK12.0m (Q321: SEK11.6m). AAC Clyde Space in Sweden improved net sales by 54% to SEK8.3m (Q321 SEK5.4m) before the royalty payment as deliveries of its power and avionics products increased.
Exhibit 1: AAC Clyde Space 9M22 results summary
SEKm |
9M21 |
9M22 |
Change |
AAC |
25.2 |
31.9 |
27% |
Clyde |
43.1 |
37.2 |
(14%) |
Hyperion |
10.00 |
9.6 |
(4%) |
SpaceQuest |
14.6 |
22.5 |
54% |
Omnisys |
24.9 |
32.3 |
30% |
AAC Space Africa |
2.8 |
||
Net sales |
117.8 |
136.4 |
16% |
SDaaS |
9.2 |
12.6 |
36% |
Space Missions |
37.5 |
34.2 |
(9%) |
Space Products |
69.7 |
85.8 |
23% |
Licence income |
1.4 |
3.8 |
172% |
Net sales |
117.8 |
136.4 |
16% |
Other operating income |
10.0 |
15.5 |
54% |
Development work capitalised |
9.4 |
15.7 |
67% |
Group income |
137.3 |
167.6 |
22% |
Raw materials & subcontractors |
(51.8) |
(48.9) |
(6%) |
Personnel costs |
(73.6) |
(100.9) |
37% |
Other external expenses |
(20.3) |
(31.1) |
54% |
EBITDA adjusted |
(8.3) |
(13.3) |
60% |
Other operating expenses |
(4.0) |
(5.2) |
30% |
Acquisition expenses |
(1.7) |
0.0 |
(100%) |
EBITDA reported |
(14.0) |
(18.5) |
32% |
Depreciation and amortisation |
(16.7) |
(20.28) |
22% |
EBIT |
(30.6) |
(38.7) |
26% |
PBT |
(32.9) |
(31.6) |
(4%) |
Net income |
(31.2) |
(29.1) |
(7%) |
EPS (SEK) |
(0.18) |
(0.15) |
(17%) |
Net cash at period end |
108.0 |
25.0 |
(77%) |
Lease liabilities |
(11.3) |
(12.1) |
4% |
Total net financial assets |
96.8 |
12.9 |
(86%) |
Source: Company reports
Of the businesses acquired since the pandemic, Omnisys and SpaceQuest improved Q322 EBITDA contributions. Omnisys generated SEK1.7m (Q321: SEK0.2m) and SpaceQuest SEK2.8m (Q321: SEK1.7m. Hyperion made an EBITDA loss of SEK1.1m (Q321: SEK0.8m profit). The EBITDA loss at Clyde Space was slightly higher at SEK8.0m (Q321: SEK7.5m) following a difficult Q122. performance. AAC Clyde Space in Sweden reduced its EBITDA loss to SEK2.2m in Q322 from SEK5.0m a year earlier, largely because of the royalty payment from York. AAC Space Africa, which commenced operations in Q321, made a Q322 EBITDA loss of SEK0.9m. Overall, the reported EBITDA loss was SEK7.7m compared to a loss of SEK10.0m in Q321.
Key highlights of the first nine months of FY22 (9M22) were:
■
Group net sales rose 16% to SEK136.4m (9M21: SEK117.8m). SDaaS sales started to accelerate, growing 36% to SEK12.6m, with further new satellites being deployed during Q422. Space Products grew net sales 23% to SEK85.8m (9M21: SEK69.7m), reflecting strong growth at AAC Clyde Space in Sweden and SpaceQuest, as well as the full nine-month contribution from Omnisys. Space Missions’ performance continued to be the main casualty of the supply chain constraints and project deliveries caused by delays from subsystems suppliers, with year to date net sales falling 9% to SEK34.2m (9M21: SEK37.5m) despite a healthy increase in segment sales at SpaceQuest. AAC Space Africa made an initial SEK2.8m contribution.
■
The 9M22 group EBITDA loss was SEK18.5m (9M21: SEK12.3m before acquisition costs of SEK1.7m), despite the improved Q322 performance. SpaceQuest and Omnisys both increased their contributions to SEK7.0m (9M21: SEK4.9m) and SEK6.8m (9m21: SEK3.7m) respectively. Hyperion made a small EBITDA loss of SEK0.3m (9M21: SEK2.5m profit) and Clyde Space saw its EBITDA loss increase to SEK18.0m (9M21: SEK12.3m). AAC Clyde Space in Sweden saw its EBITDA loss increase modestly to SEK11.6m (9M21 loss: SEK10.8m before acquisition costs of SEK1.7m) despite the increase in licence income. AAC Space Africa made a SEK2.4m EBITDA loss.
■
The increased EBITDA losses costs largely reflected an increase of SEK27.3m in personnel costs and SEK9.2m in other external costs as the company absorbed the full period addition of Omnisys costs and continued to invest in a larger organisation to deliver the anticipated growth.
■
The loss before tax of SEK31.6m was a slight reduction on the prior year nine-month loss of SEK32.9m after benefiting from a SEK9.4m improvement in net financial income.
■
Adjusted net cash (excluding leases) at the end of the period was SEK25.0m compared to SEK96.1m at the start of the year and SEK46.5m at H122. Operating cash outflow was SEK11.4m in Q322 (Q321 inflow of SEK16.4m), largely reflecting higher working capital due to accrued revenues in ongoing projects where project milestones are delayed. With further delays due to launch deferrals into FY23, management is evaluating measures to mitigate potential short-term cash flow effects.
|
Exhibit 2: AAC Clyde Space net sales split by segment activity (Q322: SEK136.4m) |
Exhibit 3: AAC Clyde Space order backlog development (SEK418.6m at Q322) |
|
|
|
Source: Company reports |
Source: Company reports |
|
Exhibit 2: AAC Clyde Space net sales split by segment activity (Q322: SEK136.4m) |
|
|
Source: Company reports |
|
Exhibit 3: AAC Clyde Space order backlog development (SEK418.6m at Q322) |
|
|
Source: Company reports |
Outlook and earnings revisions
We remind investors that AAC Clyde Space remains a relatively small company with revenues in US dollars of just over $20m. While these are expected to grow rapidly in the next few years, individual contracts and projects can have a significant impact on revenues, profitability and cash flows, as recent deferrals and delays have highlighted. Management still anticipates sales of SEK500m by FY24 and c SEK2.3bn in FY30. With the positive leverage effects on a relatively fixed cost base, there should be a dramatic improvement in profitability and cash generation as these targets are achieved.
Our confidence in the company’s ambitions is aided by the order backlog, which grew by almost 5% to SEK418.6m during Q322, mainly reflecting strong intake for computers and power systems in Space Products. We noted at H122 that there remained a risk that some project deliveries could slip into FY23 and unfortunately that has happened, largely due to delays by launch providers. Management now expects SEK75m of the backlog to be recognised as revenue in Q422, and thus FY22 revenues to exceed SEK210m. We have reduced our sales expectations by 12% to SEK214.1m from SEK242.6m previously. Our FY22 estimated EBITDA loss increases by 84% to SEK15.3m.
However, the milestone delays should be recovered in H123, primarily at Clyde Space. We have largely maintained our FY23 revenue estimate at the Glasgow unit, reflecting that expectation together with some deferral to high-margin SDaaS revenues due to knock-on delays to satellite commissioning. Overall, we have reduced our sales expectation by 4% to SEK356.7m. Our FY23 EBITDA expectation is 21% lower at SEK25.7m with a slightly reduced margin due to a less favourable business mix resulting from the reduction in SDaaS sales.
Exhibit 4: AAC Clyde Space earnings revisions
Year to December (SEKm) |
2022e |
2023e |
||||
|
Prior |
New |
% change |
Prior |
New |
% change |
By Business |
||||||
AAC |
40.9 |
49.6 |
21.2% |
77.4 |
72.3 |
(6.6%) |
Clyde |
91.1 |
56.1 |
(38.4%) |
139.5 |
130.1 |
(6.8%) |
Hyperion |
19.5 |
14.6 |
(25.0%) |
23.4 |
19.0 |
(18.8%) |
SpaceQuest |
26.9 |
31.7 |
17.9% |
37.7 |
41.3 |
9.4% |
Omnisys |
59.2 |
57.0 |
(3.7%) |
74.0 |
74.1 |
0.1% |
AAC Clyde Africa |
5.0 |
5.0 |
20.0 |
20.0 |
||
Total group net sales |
242.6 |
214.1 |
(11.8%) |
372.0 |
356.7 |
(4.1%) |
By activity |
||||||
SDaaS |
30.3 |
19.0 |
(37.3%) |
70.1 |
55.0 |
(21.6%) |
Space Missions |
83.6 |
53.7 |
(35.8%) |
112.9 |
113.6 |
0.6% |
Space Products |
126.7 |
137.7 |
8.7% |
187.0 |
186.1 |
(0.4%) |
Licence & royalties income |
2.0 |
3.8 |
88.1% |
2.0 |
2.0 |
0.0% |
Total group net sales |
242.6 |
214.1 |
(11.8%) |
372.0 |
356.7 |
(4.1%) |
Other operating income |
7.3 |
17.3 |
137.0% |
7.3 |
7.3 |
|
Own work capitalised |
23.5 |
22.5 |
(4.3%) |
37.8 |
37.2 |
|
Total group income |
273.4 |
253.9 |
(7.1%) |
417.0 |
401.2 |
(3.8%) |
Raw materials & subcontractors |
(99.5) |
(85.6) |
(13.9%) |
(156.2) |
(149.8) |
(4.1%) |
Personnel costs |
(136.2) |
(136.2) |
0.0% |
(165.0) |
(165.0) |
0.0% |
Other external expenses |
(46.1) |
(42.4) |
(8.0%) |
(63.2) |
(60.6) |
(4.1%) |
Other operating expenses |
0.0 |
(5.0) |
0.0 |
0.0 |
||
EBITDA (company adjusted) |
(8.3) |
(15.3) |
83.9% |
32.5 |
25.7 |
(20.9%) |
EBIT (Pre-PPA amortisation) |
(25.5) |
(31.7) |
24.4% |
12.4 |
6.0 |
(51.1%) |
Underlying PBT |
(21.2) |
(24.9) |
17.2% |
11.5 |
4.9 |
(57.1%) |
EPS - underlying continuing (SEK) |
(0.10) |
(0.12) |
16.6% |
0.05 |
0.02 |
(57.3%) |
Adjusted net cash/(debt) (excluding leases) |
31.5 |
28.6 |
(9.0%) |
4.6 |
(3.6) |
(178.9%) |
Source: Edison Investment Research estimates
Exhibit 5: Financial summary
SEKm |
2019 |
2020 |
2021 |
2022e |
2023e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Net sales |
|
|
66.4 |
98.4 |
180.0 |
214.1 |
356.7 |
Own work capitalised and other operating income |
14.1 |
21.1 |
30.9 |
39.8 |
44.5 |
||
Group income |
80.6 |
119.5 |
210.8 |
253.9 |
401.2 |
||
EBITDA |
|
|
(27.3) |
(17.5) |
(12.4) |
(15.3) |
25.7 |
Operating Profit (before amort. and except). |
(32.7) |
(22.2) |
(21.9) |
(24.8) |
14.1 |
||
Intangible Amortisation |
(4.6) |
(3.3) |
(0.9) |
(6.9) |
(8.0) |
||
Exceptionals |
(2.9) |
(12.1) |
(15.8) |
(10.0) |
(10.0) |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
(40.2) |
(37.5) |
(38.6) |
(41.7) |
(4.0) |
||
Net Interest |
(0.8) |
(1.3) |
(4.2) |
6.9 |
(1.1) |
||
Profit Before Tax (norm) |
|
|
(38.2) |
(26.7) |
(27.0) |
(24.9) |
4.9 |
Profit Before Tax (FRS 3) |
|
|
(41.0) |
(38.8) |
(42.8) |
(34.9) |
(5.1) |
Tax |
0.5 |
0.5 |
3.3 |
1.7 |
0.3 |
||
Profit After Tax (norm) |
(37.8) |
(26.4) |
(24.9) |
(23.6) |
4.7 |
||
Profit After Tax (FRS 3) |
(40.6) |
(38.3) |
(39.5) |
(33.1) |
(4.8) |
||
Average Number of Shares Outstanding (m) |
84.8 |
102.3 |
173.8 |
199.0 |
204.8 |
||
EPS - fully diluted (SEK) |
|
|
(0.45) |
(0.26) |
(0.14) |
(0.12) |
0.02 |
EPS - normalised (SEK) |
|
|
(0.44) |
(0.26) |
(0.14) |
(0.12) |
0.02 |
EPS - (IFRS) (SEK) |
|
|
(0.48) |
(0.37) |
(0.23) |
(0.17) |
(0.02) |
Dividend per share (SEK) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
EBITDA Margin (%) |
-41.1 |
-17.8 |
-6.9 |
-7.2 |
7.2 |
||
Operating Margin (before GW and except.) (%) |
-49.3 |
-22.5 |
-12.2 |
-11.6 |
3.9 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
436.9 |
523.0 |
681.0 |
714.2 |
727.5 |
Intangible Assets |
418.6 |
494.3 |
639.5 |
663.4 |
667.6 |
||
Tangible Assets |
4.1 |
16.2 |
26.4 |
40.2 |
53.7 |
||
Right of use asset |
14.2 |
12.5 |
15.1 |
10.6 |
6.1 |
||
Investments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
108.5 |
113.3 |
193.4 |
124.3 |
154.6 |
Stocks |
13.1 |
12.8 |
13.2 |
36.4 |
60.6 |
||
Debtors |
17.7 |
9.5 |
23.0 |
34.3 |
57.1 |
||
Cash |
52.4 |
62.4 |
96.1 |
32.1 |
8.3 |
||
Other |
25.2 |
28.5 |
61.1 |
21.5 |
28.6 |
||
Current Liabilities |
|
|
(60.5) |
(56.1) |
(129.2) |
(93.1) |
(148.6) |
Creditors |
(60.5) |
(56.1) |
(128.5) |
(93.1) |
(136.7) |
||
Short term borrowings |
0.0 |
0.0 |
(0.6) |
0.0 |
(12.0) |
||
Long Term Liabilities |
|
|
(16.0) |
(14.4) |
(16.6) |
(17.0) |
(9.7) |
Long term borrowings |
(0.8) |
(0.3) |
0.0 |
(3.5) |
0.0 |
||
Lease liabilities |
(14.1) |
(12.9) |
(15.1) |
(11.5) |
(8.0) |
||
Other long term liabilities |
(1.1) |
(1.2) |
(1.5) |
(2.0) |
(1.7) |
||
Net Assets |
|
|
468.9 |
565.8 |
728.6 |
728.4 |
723.8 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(15.3) |
(14.6) |
(37.3) |
(50.4) |
10.2 |
Net Interest |
(0.8) |
(0.2) |
(0.2) |
7.8 |
(0.2) |
||
Tax |
0.4 |
0.4 |
2.1 |
1.2 |
(0.2) |
||
Capex |
(13.9) |
(17.2) |
(29.2) |
(26.3) |
(43.0) |
||
Acquisitions/disposals |
(3.0) |
(6.2) |
2.6 |
(32.4) |
0.9 |
||
Financing |
73.3 |
49.2 |
94.1 |
33.3 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
40.7 |
11.4 |
32.0 |
(66.8) |
(32.3) |
||
Opening net debt/(cash) excluding lease liabilities |
(10.9) |
(51.6) |
(62.2) |
(95.5) |
(28.6) |
||
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.1 |
(0.8) |
1.3 |
0.0 |
0.0 |
||
Closing net debt/(cash) excluding lease liabilities |
(51.6) |
(62.2) |
(95.5) |
(28.6) |
3.6 |
||
Net financial liabilities including lease liabilities |
(37.5) |
(49.3) |
(80.4) |
(17.1) |
11.6 |
||
Source: Company reports, Edison Investment Research estimates
|
|
Research: Investment Companies
In our update on The Bankers Investment Trust (BNKR) in August, we updated readers on fund manager Alex Crooke’s macroeconomic views and positioning. As one would expect, there have not been wholesale changes since then in his views and the resultant positioning, as invariably BNKR’s style is incremental change. There are some developments on the potential direction of travel for geographic weightings, with the manager taking advantage of the recent relative strength in UK large caps to raise levels of liquidity modestly, likely to be deployed in Asia over time. In other news, 2022 has been a decent year for a recovery in dividends. Janus Henderson Investors (JHI) estimates that on a 12-month forward basis, the top 10 positions within the trust (on an unweighted basis) should on average generate dividend increases of 11% and at H122 the board guided for an FY22 dividend increase of at least 5% over the level paid in 2021, which could well be a conservative estimate.
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